Conference files, lot 59 D 95, CF 107: Telegram

No. 802
The Deputy Director for Mutual Security (Kenney) to the Mutual Security Agency Mission in Austria1

secret
priority

Musto 370. This is joint State/MSA message.

1.
At dinner for Figl, May 14,2 Austrian Ambassador told Secretary of Gruber view that Weltpresse article3 had created critical situation for coalition and need for helpful action on our part. When asked what we could do, Loewenthal urged calling off investigation. Figl overruled him but supported recommendation that $11 million be unblocked and counterpart released.
2.
In further conferences May 15 with Harriman and MSA officials,4 (fuller cable5 also coming on this meeting) Figl reiterated [Page 1756]his anxiety and urged that some favorable action re 11 million dollars and counterpart funds would have to be taken to disprove reports that “ultimatum” had been delivered. The Department is concerned by Figl’s statement that coalition seriously endangered. We continue believe coalition is essential Austrian political stability and see no alternative. Department and MSA rely therefore on your judgment as to how much pressure can safely be put upon coalition in order to complete investigation and insure remedial action without endangering coalition and financial stability. Dept and MSA believe, furthermore, that settlement can best be worked out by you in Vienna where you can consult both elements of coalition. We realize that greatest caution is called for. FYI Figl already intimated he may return Vienna immed when informed that MSA/W and Dept would base policy on your estimate of situation.
3.
From talks with Figl we gather he regrets his weakness in not pressing investigation though he apparently thinks we are making tempest in teapot over what he seems to regard as small scale irregularities which occurred years ago. We believe he now understands gravity of situation and sincerely wishes to wind up investigation. We are inclined to doubt his ability to do so. (Do we understand correctly that accountants will make no further efforts to get into records of Creditanstalt subsidiaries besides Limor, especially Warentreuhand?) Consider therefore Figl must return to Vienna before solution can be found.
4.
Action problems involved seem to be three categories: (a) Measures proposed Embtel 3557;6 (b) 1.2 billion schilling counterpart release; (c) $11 million allotment.
5.
Re counterpart release, you are authorized negotiate with Austrians to secure maximum performance and/or new and explicit assurances on subjects outlined Meyer–Figl letter,7 before finally releasing counterpart. Ambassador is authorized to make public statement that he has instructions which will make it possible to release 1.2 billion schillings of counterpart on fulfillment of satisfactory conditions and agreement as to specific uses. Austrians request you coordinate public statement this subject with Austrian Government. If asked whether Limor is one of conditions, you can answer in negative.
6.
Re $11 million allotment, would appreciate your recommendations re timing and conditions this allotment. We believe that bargaining power involved in this allotment should be used to fullest to elicit performance and economic-financial reforms and press investigation to conclusion. We are not prepared now to specify precise conditions under which $11 million allotment would be made, but urgently request your views and recommendations thereon.
7.
Cable will follow8 re proposals Embtel 3557.
Kenney
  1. Drafted by Rutter and H. Cleveland; cleared with Perkins, L. Gordon, and Kenney. Repeated to Paris for Draper.
  2. The dinner was given by Secretary and Mrs. Acheson at the Anderson House at 8 p.m. in honor of the Chancellor and Mrs. Figl.
  3. Reference to the Weltpresse articles of May 13 releasing the story of the ERP fund scandal.
  4. The meeting with W. Averell Harriman and other MSA officials took place at 10 a.m. at the Mutual Security Agency.
  5. Reference to Musto 371, infra .
  6. Telegram 3557 requested the Department of State’s views on several “punitive measures” that could be utilized if satisfactory results were not realized soon in the dollar diversion scandal investigation, such as the withdrawal of U.S. funds from the Creditanstalt, the exclusion of Creditanstalt from financing operations related to the Export-Import Bank cotton loan, and the elimination of the Creditanstalt from MSA-financed import operations. (863.10/5–1052)
  7. Not found in Department of State files.
  8. Not further identified.